8.4.3        America’s Economic Interests

(This is an archived extract from the book Patterns of Power: Edition 2)

Despite government denials, many people suspected that the invasion of Iraq was 'about oil'.  America doesn't need direct control over its oil supplies as long as it is able to buy oil on the open market (3.5.4),[1] but there are three ways in which oil could have been relevant to the decision to invade Iraq:

·      Long-term stability of oil supplies was a consideration.  Alan Greenspan, who was the chairman of the Federal Reserve at the time, had advised the White House before the invasion that removal of Saddam Hussein was necessary to secure world oil supplies.[2]   

·      A war might be seen as an investment, to benefit from lower oil prices in future as a consequence of greater political stability in the Middle East.  Using the initial estimates of the cost of the war, at $50-$60 billion,[3] and projecting a 10% reduction in the $120 billion annual cost of America's oil imports,[4] the war might be thought to represent a good investment – but not if the war were to cost $100 billion or more.[5] 

·      The oil industry would benefit from the invasion of Iraq if that were to enable it to win contracts to exploit the country’s vast oil reserves.  As reported by Al Jazeera, these hopes came to fruition:

“[T]hanks to the invasion and occupation, the companies are now back inside Iraq and producing oil there for the first time since being forced out of the country in 1973."

“While the US military has formally ended its occupation of Iraq, some of the largest western oil companies, ExxonMobil, BP and Shell, remain.” [6]

As discussed later in this chapter (8.7.5) there were grounds for doubting whether an invasion of Iraq would lead to stability in the region, so the first two economic justifications were shaky.  The benefit to the oil companies, and to oilfield services companies like Halliburton, was unquestionable though.

The actual costs of the war were much higher, at $800 billion, which was not at all surprising when considering that the cost of evicting Iraq from Kuwait in 1990-91, which had not involved any ground troops, was $100 billion.[7]  The true cost to the American economy (taking account of treating injured soldiers, lost economic output, and interest payments on government debt) has been assessed at $3 trillion.[8]  Whilst it would not have been possible to forecast the total cost before the invasion started, it was either naïve or dishonest to suggest that it would cost less than the earlier war against Iraq.

© PatternsofPower.org, 2014

[1] The Independent Institute published an article on 12 August 2008 which used Ricardo's Free Trade argument (3.5.4) to debunk the idea that America would necessarily benefit from energy independence in economic terms.  The article was entitled Must the Government Combat Americans’ Addiction to Foreign Bananas?  It was available in April 2014 at http://blog.independent.org/2008/08/12/must-the-government-combat-americans-addiction-to-foreign-bananas/.

[2] The Washington Post published an article entitled Greenspan: Ouster Of Hussein Crucial For Oil Security, which reported an interview with Alan Greenspan in which the former chairman of the Federal Reserve said that “the removal of Saddam Hussein had been "essential" to secure world oil supplies, a point he emphasized to the White House in private conversations before the 2003 invasion of Iraq”.  The article was available in April 2014 at http://www.washingtonpost.com/wp-dyn/content/article/2007/09/16/AR2007091601287.html.

[3] On 30 December 2002 The New York Times published some cost estimates for the invasion of Iraq which had been given in  a telephone interview with Mitchell E. Daniels Jr., director of the Office of Management and Budget:

“The administration's top budget official estimated today that the cost of a war with Iraq could be in the range of $50 billion to $60 billion, a figure that is well below earlier estimates from White House officials.”

This article was available in April 2014 at http://www.nytimes.com/2002/12/31/us/threats-responses-cost-white-house-cuts-estimate-cost-war-with-iraq.html?pagewanted=all&src=pm.

[4] According to a Congressional Research Service report, published on 4 April 2012 and entitled U.S. Oil Imports and Exports, America was importing 11 million barrels of oil per day in 2003 (p. 1, Fig. 1, showing at p. 5 of pdf file).  The oil price at that time was around $30 a barrel (p. 15, Fig. 5, showing at p. 19 of pdf file), so the total annual cost of oil imports was $120 billion. This report was available in April 2014 at http://www.fas.org/sgp/crs/misc/R42465.pdf.

[5] The yield (calculated as the internal rate of return) on an investment of £50bn, which resulted in annual savings of $12bn for 10 years, is 20%.  That yield drops to 4% if the investment were $100bn. 

[6] On 7 January 2012 Al Jazeera published an article entitled Western oil firms remain as US exits Iraq; it was available in April 2014 at http://www.aljazeera.com/indepth/features/2011/12/2011122813134071641.html/.

The article quoted Antonia Juhasz, the author of the books The Tyranny of Oil and The Bush Agenda.  The reason for quoting Al Jazeera, rather than another source, is to draw attention to the fact that Arab audiences are well aware of developments in the oil industry, and its possible role in encouraging the invasion, and that this is likely to affect their attitudes towards America and Britain.  The existence of the oil contracts is a matter of ascertainable fact.

[7] On 29 June 2010 the Congressional Research Service published a report entitled Costs of Major U.S. Wars, which gave the cost of the invasion of Iraq at $800 billion (expressed in terms of the 2010 value of the dollar).  The same report quoted the Persian Gulf War (1990-91) at $100 billion dollars. 

It was available in April 2014 at http://www.fas.org/sgp/crs/natsec/RS22926.pdf.

[8] These figures for the cost of the Iraq war were taken from an article by Joseph E. Stiglitz and Linda J. Bilmes, which was entitled The true cost of the Iraq war: $3 trillion and beyond; it was published in the Washington Post on 5 September 2010 and was available in April 2014 at http://www.washingtonpost.com/wp-dyn/content/article/2010/09/03/AR2010090302200_pf.html.  The authors also wrote a book entitled The Three Trillion Dollar War: The True Cost of the Iraq Conflict.